Japan Financial Services Agency (FSA) There is a significant movement towards a more favorable tax regime for crypto assets. The FSA recently called for a revision of tax policy surrounding cryptocurrencies in its FY2025 proposal, advocating for cryptocurrencies to be treated similarly to traditional financial assets. This push is part of a broader effort to encourage public investment in the digital asset sector and modernize Japan’s cryptocurrency tax regulatory framework.
Cryptocurrency taxes aligned with traditional financial assets
The FSA explained in a statement released on August 30 that it needs to reconsider the tax treatment of cryptocurrency transactions. The agency argues that digital assets should be classified as financial assets, which would make them legitimate investment vehicles for the public. This would represent a significant shift from the current tax policy, which treats cryptocurrency gains as other income, with tax rates as high as 55%.
Under the current system, individuals who earn more than 200,000 yen (about $1,377) from cryptocurrency trading are taxed at a rate ranging from 15% to 55%, depending on their overall income bracket. In contrast, stock market gains are taxed at a flat rate of 20%, even for the highest earners.
The proposed reforms will also affect companies that hold crypto assets. Currently, companies are taxed at a flat rate of 30% on their crypto holdings at the end of the financial year, regardless of whether they realize a profit from the sale. The FSA’s proposal aims to make this system more equitable by bringing it in line with how traditional financial assets are taxed.
Also Read: IRS Updates Cryptocurrency Tax Reporting Requirements: Form 1099-DA Explained
The Long Road to Crypto Tax Reform
The FSA proposal is a positive step for Japan’s cryptocurrency sector, but the road to implementation is long and complicated. Government ministries, including the FSA, submit tax reform requests to the ruling party, which then forwards them to the National Tax System Research Committee. The proposal must be approved by both houses of the Japanese Diet (the House of Councilors and the House of Representatives) before becoming law.
Despite these challenges, crypto advocates in Japan are still hopeful. Organizations such as the Japan Blockchain Association (JBA) have been actively lobbying for lower crypto taxes for years. In 2023, the JBA officially requested a lower tax rate on crypto profits, proposing a flat 20% rate and a three-year loss carryover deduction.
The JBA reiterated these requirements in its July 2023 submission for fiscal year 2025, seeking to create a more favorable environment for cryptocurrency businesses and investors in Japan. While past efforts have not led to policy changes, the FSA’s latest proposal could signal a turning point for the industry.